Annual holding and ordering costs using this order quantity

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Reference no: EM132296194

Your friend needs to purchase malt for his micro-brewery. His supplier charges $35 per delivery, for each delivery, regardless of the size of the order. The product cost your friend $1.20 per gallon. The annual holding cost per unit is assumed to be 35% of the item’s cost of $1.20. Assume that your friend’s weekly usage of malt is 250 gallons and the brewery is open 52 weeks per year.

Part One

1. Suppose your friend orders 2,500 gallons of malt each time an order is made. What is the total annual holding and ordering costs using this order quantity?

2. Suppose each order is for 500 gallons of malt, what is the total annual holding and ordering costs using this order quantity?

3. Use a data table to show how annual holding costs and annual ordering costs change as the order quantity Q changes. Start with a Q equal to 500 and increase Q in 500 unit increments up to 3000 (e.g., 500, 1000, 1500, 2000, 2500, and 3000). Produce a graph that shows the costs (ordering, holding, and total) by order quantity. Be sure to label your graph.

4. What should the order size be if your friend wants to minimize the annual sum of ordering and holding costs?

5. What would the cost per order (the ordering cost) need to be in order for a 500-gallon order to have annual holding and ordering costs of $900.00?

Reference no: EM132296194

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